Notice of Assessment Issued Within Limitation, Assessment Order Valid Even If Passed Beyond Three-Year Period: Madras High Court

The Division Bench of Justices R. Suresh Kumar and C. Saravanan observed that “as per Section 24(5), no assessment shall be made after a period of three years from the end of the year to which the return under the Act relates. The test to be applied is whether the notice for completing the assessment was issued within limitation i.e., three years to which the returns relate to. If so, even if the Assessment Order is passed beyond the period of three years, it will be in time.”

Section 15(1) of the Puducherry Value Added Tax Act, 2007 provides that every dealer who executes any works contract shall be liable to pay tax on the sale value of goods involved in the execution of works contract whether or not the transfer of property on such goods occurred in the same form or in some other form, at the rate specified in Schedules for such goods.

As per Section 24(1) of the Puducherry Value Added Tax Act, 2007 provides that every registered dealer shall file a tax return for each tax period within fifteen days after end of the period in such manner as may be prescribed.

As per Section 24(4) of the Puducherry Value Added Tax Act, 2007, the Assessing Authority has to serve a notice, on completion of the Assessment and the dealer is required to pay balance of tax in accordance with terms of that notice.

As per Section 24(5) of the Puducherry Value Added Tax Act, 2007, no Assessment under Section 24 shall be made after a lapse of three years from the end of the year to which, the returns filed under the Act relates.

Facts of the case:

The Respondent/Assessee faced adverse assessment orders for the Assessment Years 2007-08 to 2009-10 from the Commercial Tax Officer under the Puducherry Value Added Tax (PVAT) Act, 2007. The Assessee had filed nil returns under the provisions of the Puducherry Value Added Tax Act, 2007 read with Rule 25(3) of the PVAT Act and Rules, 2007, and claimed that the works carried out by the Assessee on a job-work basis were exempt from the payment of tax under the PVAT Act, 2008. A pre-assessment notice dated 25.09.2014 proposed to reject the nil returns filed by the Assessee, asserting that the powder coating process on products like yokes, links, and tubes constituted a works contract. The Commercial Tax Department ruled that the materials used in the process were part of a taxable works contract.

The Assessee filed an appeal before the Appellate Assistant Commissioner, which was dismissed. The Assessee then appealed to the Sales Tax Appellate Tribunal, which ruled in favor of the Assessee, holding that the assessment orders for 2007-08 were time-barred under Section 24(5) of the PVAT Act, 2007. The department has now challenged the order passed by the Sales Tax Appellate Tribunal before the Madras High Court.

The Department submitted that the Tribunal had failed to appreciate the fact that the assessing officer had issued a notice on 05.03.2011 for the respective Assessment Years viz., 2007-2008 to 2009-2010, directing the Assessee to explain the basis for claiming exemption. Since the department had initiated action within three years of the close period to which the return relates, Assessment Orders passed on various dates covered in the appeals, were not time barred under Section 24(5) of the PVAT Act, 2007.

Observations of the High Court:

The bench referred to the case of Larsen and Toubro Ltd and Another vs State of Karnataka (2014) 1 SCC 708 where the legal position regarding levy of sales tax on works contract was clarified by the Supreme Court and it was held that “the term “works contract” in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone and nothing in Article 366(29-A)(b) limits the term “works contract”, wherein a contract may involve both a contract of work and labour and a contract for sale, in such composite contract, the distinction between contract for sale of goods and contract for work (or service) is virtually diminished.”

The bench observed that the definition of work-contract in Section 2(zp) of the PVAT Act, 2007 is very wide. It includes any improvement modification, repair or commissioning or any movable or immovable property. Thus, without doubt the work undertaken by the Assessee for 'powder coating' the products like yokes, links and tubes etc amounts to works contract. Since the activity of powder coating is in the nature of works contract, it is to be construed that there is a transfer of property in the execution of works contract. Therefore, the Assessee is liable to pay tax under Section 15(1) of the PVAT Act, 2007.

The bench further referred to the case of M/s. Orient Fans Proprietor –M/s. Orient Paper and Industries Limited vs. The State Tax Officer, (Backyear Assessment), Egmore Assessment Circle, Chennai where it was held that the assessment proceedings were not barred by limitation, as the notice seeking to revise the assessment had been issued in time for four Assessment Years except 2010-2011.

The bench concluded that a limitation is prescribed under Section 24(5) of PVAT Act, 2007 for completing assessment. As per Section 24(5), no assessment shall be made after a period of three years from the end of the year to which the return under the Act relates. The test to be applied is whether the notice for completing the assessment was issued within limitation i.e., three years to which the returns relate to. If so, even if the Assessment Order is passed beyond the period of three years, it will be in time.

The bench noted that since notices were issued on 05.03.2011 i.e., within three years contemplated under Section 24(5) of the PVAT Act, 2007, the assessment orders passed on 12.12.2014, 22.12.2014 and 31.12.2014 are held to have been passed in time.

In view of the above, the bench allowed the petition.

Counsel for Petitioner/ Department: J. Kumaran

Counsel for Respondent/ Assessee: M.N. Bharathi

Case Title: The Appellate Assistant Commissioner (CT) Commercial Taxes Department v. M/s. Supreme Coaters & Fabricators

Case Number: T.C.(Revision) Nos.41 to 43 of 2016